Failure to pay a recourse claim must also be recognized for tax purposes in the case of free guarantees between unrelated third parties

Income tax law generally only covers activities undertaken with the intention of generating income. Using this argument, the tax authorities did not want to recognize losses from the default of a guarantee recourse claim as losses from capital assets for tax purposes because the guarantee had been provided free of charge. However, the German Federal Fiscal Court has now contradicted this in its decision of July 1, 2025 (case no. VIII R 3/23).

Rather, the intention to generate income for losses arising from the default of a guarantee recourse claim in the case of a free guarantee assumption between third parties is presumed to be rebuttable. It is generally only refuted if the guarantee was given without any economic background. The court thus confirms once again that in the case of taxation of capital income with the flat-rate withholding tax, an intention to generate income is presumed (rebuttable).

The dispute concerned the loss of a recourse claim arising from a guarantee that the taxpayer had provided free of charge to a limited liability company (GmbH). He was not a shareholder in this GmbH but had entered into interest-bearing loan agreements with it. In the year in question, his partner was the separated former wife of a shareholder in the GmbH. The taxpayer also apparently had business dealings with this GmbH.

The Federal Fiscal Court ruled that, in this case too, there was a presumption of intent to generate income from the free guarantee. The guarantor generally assumes a free guarantee in the expectation that it will not be called upon and has sufficient commercial reasons, as would be assumed among unrelated third parties, for providing security in this form. Only in the absence of any economic background is the intention to generate income for the provision of the guarantee refuted. Since the fiscal court had based its decision in the first instance on other assumptions, it must now examine in the second instance whether the provision of the guarantee had at least some economic background or was made entirely without such a background.
 

Notice:

This decision is significant in practice. However, it should be noted that despite the presumption of the intention to generate income, it is advisable to carefully document in each individual case the economic background that leads to the guarantee being provided free of charge. The decisive factor in this respect is the date on which the guarantee is provided.